LANSING -- Pontiac Emergency Manager Lou Schimmel was at the state Capitol on Wednesday with a $6 million problem.

"We can't pay $6 million, because we don't have it," a serious-looking Schimmel told the Michigan Department of Treasury's Emergency Loan Board, referring to the annual cost to the city for about 1,000 retirees' health care.

The three-person board must decide by Monday whether Schimmel's plan for dealing with health care -- eliminate the obligation for two years or whenever the city's financial emergency ends -- or a proposal by the Pontiac City Council involving a transfer from a city pension fund is the best option. The board decided not to take a vote Wednesday, with the intention of meeting again on Friday or Monday after reviewing the issue.

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John Nixon, director of the state's Department of Technology, Management & Budget, said to Schimmel: "So if we don't approve this, what I hear you saying ..."

Schimmel replied: "I'm going to be talking to you about bankruptcy."

A delay until Monday is fine, Schimmel told the board. "If there's no decision after that, we're in a world of trouble."

Mayor Leon Jukowski and Stephen Hitchcock, an attorney for the city, were in the audience. No Pontiac City Council members were present. President Pro Tem Patrice Waterman could not be reached for comment Wednesday.

"Here we are, here they aren't," said resident Linda Hasson, who encouraged the Emergency Loan Board to approve Schimmel's proposal.

Claudia Filler, the president of the City of Pontiac Retired Employees Association, said: "I'm happy that they're taking their time to study all the implications of their actions."

The group has several pending lawsuits against the city related to benefit cutbacks. "We've already filed suit in federal court. If they take the action, I'm 99 percent sure that we're going to be following up with a lawsuit if they eliminate our benefits, if the current litigation doesn't totally cover that," Filler said.

The emergency manager, the third appointed to the city since its finances came under state supervision in 2009, outlined for the board what he's done since coming to City Hall, including paying down most of the city's debt.

"I came into the city, which was in disaster shape, and did, I guess you'd say, major surgery," Schimmel said. The city receives about $30 million annually in revenue, as compared to $57 million annually before its property tax base dwindled by more than 50 percent.

"Out of $30 million, we pay nearly $12 million for police services and about $6.5 million for the fire department, which used to cost us $14 million," Schimmel said. "There is nowhere else to go."

Schimmel floated a millage proposal to pay for retiree health care on the November ballot, but it was rejected by voters.

The emergency manager has said he wants to leave City Hall this month, and the city's new budget that took effect July 1 pays for retiree health care through the fall with proceeds from the sale of Lot 9 and the anticipated sale of the Pontiac Municipal Golf Course.

Schimmel's request to set aside retiree health care has been made in order to wipe out the city's remaining $6 million annual structural deficit, or obligations consistently above and beyond the money that's available to pay them. Part of his plan is to provide a $400 per month pension benefit increase to help offset the retirees' cost of purchasing health care.

Under the state's emergency manager law, the Pontiac City Council submitted a counterproposal to the Michigan Department of Treasury that pitches what's known as a "420 transfer" from the Pontiac General Employees Retirement System, which is approximately 150 percent funded, with about $450 million in assets.

The pension board's attorney has said that "if you want to take pension assets and use them to pay for retiree health care, this is the way to do it."

A 420 transfer allows the use of 50 percent of a pension fund's earnings each year over and above projected returns to pay for retiree health care, per state law. Federal law dictates that the transfer can't bring the pension plan beneath a 125 percent funding level.

Attorney Hitchcock said the council's proposal isn't viable.

"There would have been several years in the last five years where this wouldn't have worked," Hitchcock said. "You're into this game where you never know whether your year is going to generate any money you can withdraw for health care contributions."

Schimmel added, "In three of the last six years, you would have had zero (from the pension fund) to transfer over (to health care)."

The plan to set aside retiree health care altogether is Plan B, Schimmel said, after the pension board would not vote to dissolve and join the state Municipal Employees' Retirement System, buying in at a 120 percent funding level and using the remainder of its surplus to fund retiree health care. He's twice tried to cut the number of trustees on the board in half.

"For various reasons, that local board refuses to go out of business and turn the assets over to the State of Michigan," he said. "It involves such things as travel, various perks, investment counselors and lawyers who don't want to lose their jobs."